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What to think about when buying cars for business

We’ve heard it all before, but the fact doesn’t change – a lot of small to medium businesses run on the back of their cars.

When it comes to major purchases, you want to know you’re getting it
right. Decisions in business should be grounded on numbers, not on
impulses. So what can you do to make sure your car purchase is wise,
strategic and contributes to the bottom line?

1. Figure out the car’s primary use
If your business is purchasing a car or a vehicle, you have to ask
the question, why is your business purchasing this asset? All vehicles
are long-term assets and will likely be purchased with a long-term
liability (a loan, in other words), so considering how much money the
purchase can make for you is always a good idea.

For example, if you need a car for short trips to carry documents,
thereby saving on courier expenses, a small, second-hand compact car
might be best. If you’re a tradesperson or someone who carries a lot of
equipment as part of your job, then a ute or van makes good sense.

Eliminating unnecessary features that cost more will give you a
better idea of how the car will perform as an asset and what car you
should buy.

2. Should I buy new, used or certified used?
Having figured out the primary purpose of your business vehicle, next
you’re going to look at the oft-debated, seldom-settled choice of
buying new, used or certified used.

Certified used is the best of both worlds. These are
dealer-refurbished cars with low kilometres, one prior driver and
reasonably high residual value.

The decisive factor here is determined by your car’s primary use as
an asset, and how long you intend to keep it. If your business needs a
vehicle for the long-term – longer than you intend to loan it –- then it
makes sense to buy a vehicle with high residual value and at the top of
its lifespan. If your business only uses a car occasionally, then a
used car that won’t gather much wear and tear makes more sense.

3. Securing business finance
When your business takes on a long-term asset it means you’re taking on a long-term liability and the same applies when choosing a car loan.

Car loans for business have a lot of advantages over consumer loans.
The two major products for business car finance are chattel mortgages
and hire purchases. Chattel mortgages give you ownership as soon as you
buy, while the bank or lender retains ownership in a hire purchase
agreement.

Chattel mortgages allow businesses the flexibility of tailoring their
loan to fit their cash-flow and business requirements. In many cases, a
business can make a cash-flow neutral purchase, financing 100% of the
car’s value while amortising extras such as insurance and registration
costs. Businesses can claim the GST on their BAS, interest payments and
depreciation. They can also claim the fuel input tax credit.

Buying with a commercial car loan can give your business a definite advantage.

4. Look for cars you can claim under the small business tax break
If you run an eligible small business with a turnover of less than $2
million, you can look for cars that cost under $20,000 including GST.
Your business can claim the entire purchase price of the vehicle under
the accelerated depreciation scheme.

Don’t forget, it’s always a good idea to consult a financial professional before making any purchases.

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